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21 Jun 2017

Executors need longer period to pay inheritance tax bills, says Royal London

Royal London is calling for changes to inheritance tax rules so that people who act as executors to the estates of family and friends have more time to settle inheritance tax bills.

The mutual life insurance and pensions company warned that executors currently face paying IHT bills out of their own pockets due to delays in sorting out the finances of an estate, especially where property is involved.

The executor of a will gains the legal right to administer someone´s estate after death by obtaining ‘probate´. This process includes valuing the estate, paying any debts or taxes and then sharing out the remainder of the estate in accordance with the deceased´s wishes.

Under the existing rules, inheritance tax must be paid by the end of the sixth month after death, but Royal London said the complexity of the process and the assets contained within many estates means assets are unlikely to be sold in time to meet this bill.

Simple estates, such as those with no property or shares, can be wound up in as little as three to six months. However, many larger estates take around six to 12 months to complete as properties or shares may need to be sold and potential creditors need to be found.

If the estate´s assets are unable to be sold by the time the inheritance tax bill comes in, executors must find other ways of paying the bill.

Helen Morrissey, personal finance specialist at Royal London, commented: “People agree to be executors to ensure the wishes of a friend or family member are honoured after death. However, they are unwittingly leaving themselves open to footing what can be a sizeable inheritance tax bill. We are seeing more estates than ever subject to inheritance tax and larger estates can take a long time to wind up. Many executors may have no idea that they could be responsible for finding the money for a large tax bill before money in the estate is available.

“While the money can be reclaimed once assets have been sold it is an issue that could cause many executors real financial stress during an already difficult time. HMRC needs to think again about giving executors who are acting in good faith more time to sort out an estate before they start demanding tax.”

Figures from HMRC show that approximately 19,000 estates were liable for IHT in 2013/14, but with property price growth that number is predicted to rise to around 30,000 in 2016/2017.

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